Enabling Municipal Financing for Renewables and Efficiency

As of August 2010, 24 states have passed or have existing laws that allow municipal energy financing programs and a handful of cities have established operational municipal energy financing programs. The concept, widely known as Property Assessed Clean Energy (PACE) financing, is sweeping the country as more and more states are enabling the policy and the federal government steps up efforts to offer program design guidelines and seed money through the energy efficiency and community development block grant program.

However, despite hundreds of cities reportedly being in early stages of investigating or designing PACE financing programs they are now all on hold. As of July 2010, the cities are waiting on a resolution of a dispute between state/local governments and the federal housing finance agency (FHFA, e.g. Freddie Mac and Fannie Mae) related to PACE lien seniority and the risk that PACE may have on federally backed mortgages. In August 2010, the good folks at Lawrence Berkeley National Laboratory published a PACE Status Update Report to illuminate the problems and potential solutions surrounding the FHFA’s opposition.

The creation of state enabling legislation has largely consisted of updating existing state laws and codes to amend the authority some or all of the state’s municipalities have to establish special assessment districts. The key components of the enabling legislation are as follows:

Define the permitted types of renewable energy and energy efficiency projects eligible in the districts,

Create an opt-in element that allows the districts to consist of non-contiguous, self-selected property owners

Grant the authority to municipalities to issue and sell bonds needed to provide homeowners the initial capital

Click on a red-shaded state or municipal/county place marker to get details. Shaded states have recently passed or already had existing legislation to enable municipal financing.

More Information:

Municipal Energy Financing: Lessons Learned – by John Farrell, Institute for Local Self-Reliance, May 2010
Although still young and evolving, the existing PACE programs identify stumbling blocks and offer valuable lessons about program design and implementation. This ILSR Policy Brief, based on an analysis of existing programs, identifies important issues that have surfaced and comments on possible strategies for addressing them.

John Farrell directs the Energy Democracy initiative at the Institute for Local Self-Reliance and he develops tools that allow communities to take charge of their energy future, and pursue the maximum economic benefits of the transition to 100% renewable power.

About the Author

John Farrell directs the Energy Democracy initiative at the Institute for Local Self-Reliance and he develops tools that allow communities to take charge of their energy future, and pursue the maximum economic benefits of the transition to 100% renewable power.